Launching its 2023 Business Outlook report, specialist property adviser Christie & Co said that ‘impressive prices’ were achieved for ‘the most desirable’ single-site nurseries and groups, including London and ‘sought-after cities’, such as Leeds, Greater Manchester, Bristol, Glasgow, and Edinburgh, as well as in the south-east and the Midlands.
During an expert panel discussion at the launch event of the report at the British Museum on Thursday evening, hosted by journalist Robert Peston, on the subject of ratios, Courteney Donaldson, managing director, childcare and education at Christie & Co, said there was 'a lot of nervousness in the sector about reducing childcare ratios', and its impact on quality and safeguarding.
'The Government's yet to respond on the consultation,' she said. 'There are real concerns in the nursery sector, among investors, lenders and owners, that it could impact on the quality of early childhood education and that it could increase safeguarding concerns. Prices and movements for the nursery sector in particular have been very significant. Buyers are looking for quality nurseries and quality nurseries are those that demonstrate high ratios. The Government needs to look at all of early years policy, not ratios in isolation, but the level of funding that settings receive.'
Peston added, 'For what it's worth, I'm pretty sure [Rishi] Sunak is not going to implement the change in ratios. But this issue of, or perhaps more free childcare being provided, is certainly one that's on the Government's agenda, because this is one way of unlocking more people into the workforce. So I think that is a sector that's likely to undergo some sort of regulatory induced change.'
Business Outlook 2023
Between 2021 to 2022, there was a 48 per cent increase in new instructions, and a 35 per cent increase in completions ‘which substantially exceeded pre-pandemic volumes,’ the report said. Christie & Co attributed this in part to a surge in both owners facing ongoing operational pressures and uncertainly for the year ahead, and those wanting to capitalise on the strength of pricing in the market, which saw a 6.3 per cent rise last year.
Donaldson said that following a period of stagnation in 2021, due largely to the pandemic, ‘it was clear from the start of 2022 that confidence and growth appetite had been regained. Previously paused exit plans resumed, and we saw a surge in owners wishing to sell.
‘Drivers that fuelled buyer appetite included the post- Covid “catch-up” hunger to grow earnings and market share via consolidation, teamed with an increase in opportunities coming to the market. Within childcare and education sectors, the children’s day nursery and specialist childcare markets experienced the greatest degrees of heightened activity, with quality early years businesses, especially small- to medium-sized regional groups, being highly sought-after.’
In 2023, Christie & Co said it expects to see continued consolidation between national and regional day nursery groups.
However, Donaldson also acknowledged that ‘while some businesses were sold for eye-watering prices’ last year, ‘others were unable to keep their heads above water due to financial, workforce, and capacity issues which resulted in an increase in business closures.’
There was a widening gap between businesses doing well and businesses struggling, and an increase in businesses just 'getting by', especially within the early years and provincial pre-prep independent school sectors where trading performances were heavily influenced by local demographics and capacity limitations alongside other factors, the report said.
While in 2021, buyers were mostly acquiring day nursery settings close to home, in 2022, the majority (62 per cent) were buying nurseries within 50 miles of their current operation, and around a third were buying within 30 miles of existing hubs.
‘Those purchasing settings over 50 miles away increasingly represent corporates or groups with a national presence,’ the report said.
Nick Brown, director and head of brokerage, childcare and education at Christie & Co, said, ‘2022 was a very busy year, with appetite right across the buying spectrum, from first-time buyers to regional operators, to the larger national groups. We are optimistic about 2023 and hope to see similar trends and activity for quality nurseries across the country.’
Workforce
The report also highlighted the sector’s challenges, including workforce, which Christie & Co. said ‘became heightened, and for some, acute during 2022. A wide range of businesses struggled to manage operations amid staff shortages.
‘For businesses bound by strict regulatory staffing ratios, some made the difficult decision to cease some aspects of operation while they tried to find solutions to their immediate staffing needs.'
Some businesses brought annual pay reviews forward in a bid to retain staff, the report said, as competition fuelled salaries in some locations for suitably experience, qualified and competent staff, while in other cases the staffing crisis led to business closures.
Global market
There was ‘notable activity’ in the global early childhood education and care (ECEC) markets, the report said. It cited Sodexo’s Childcare Services business merger with Grandir, and Bright Horizon’s acquisition of Only About Children. Canadian private Equity firm Onex sold its majority stake in Partou to minority shareholder Waterland Private Equity Investments.
Partou subsequently acquired UK group All About Children, the provider’s second deal in the UK, following Just Childcare in 2021.
The report said that 2022 was ‘a landmark year’ for investors, trade buyers, and those successfully completing sales of their international portfolios and it anticipates ‘a very busy international ECEC marketplace in 2023’, with further consolidation opportunities and significant merger and acquisitions.
Donaldson said, ‘Despite the many headwinds in the international ECEC markets, we predict that that global mergers and acquisitions will increasingly feature in corporate providers’ strategic plans throughout 2023 and beyond, with transaction volumes gaining pace as operators take advantage of international expansion opportunities.’
Funding
Meanwhile, Christie Finance said there was likely to be an increase in borrowers seeking refinancing for small and medium-size enterprises with ‘diminishing revenues and earnings’.
However, despite energy costs, base rate increases, and political changes, ‘financially sustainable, high-quality, well-managed childcare and education businesses with good leadership should remain a stable lend for banks and investors.’
Sentiment Survey
Christie & Co anonymously surveyed childcare and education professionals from across the UK to gather their views on the year ahead. When asked about their sentiment for 2023, 33 per cent said they feel positive, 35 per cent feel neutral, and 32 per cent feel negative. When asked about their sale and acquisition plans, 73 per cent said they are looking to either buy, sell or both in 2023.
Christie & Co’s 2023 predictions
- Continued consolidation between national and regional day nursery groups
- The market will continue to be resilient in terms of quality and offering against external challenges and pressures
- Premium childcare settings will remain highly sought-after by buyers, commanding premium prices
- All locations will be considered by buyers, as they expand out of London and the south-east
- Regional consolidation will continue as operators strive to protect their portfolios/footprints
- Expanding private equity-backed groups will show signs of further growth
Download Christie & Co’s Business Outlook 2023: Finding Clarity report here